What is structural unemployment? This question has been on the lips of almost everyone concerned with the subject over the past year. In an economic climate where uncertainty abounds and unemployment numbers rise and fall by the month it is not surprising that people are asking questions like these. It is also not surprising that policy makers are starting to pay more attention to the issue. Here we will try to provide some clarity on what is structural unemployment and what its implications are for both employers and employees.
So what is structural unemployment? Essentially, structural unemployment is the collective loss of potential employment due to a mismatch between the potential skills that employed people in the marketable sector can offer, and the current skills needed of those seeking employment. In an ideal market conditions, businesses that need workers can find them via a mix of recruitment and internal efforts. Employers who need workers can advertise their positions, in order to attract qualified candidates, and actively search for them via interviews, training and on-the-job training opportunities. Potential candidates can respond to advertisements, in which case they can either accept or refuse an interview request.
However, in a complex real world, there may be no such perfect worlds. If companies cannot locate and choose candidates who will accept their job offers, then they will have to resort to less-than-optimal recruiting strategies, and they will have to choose job applicants who do not necessarily possess the exact skills they need. These are the employers’ reasons for suffering structural unemployment. Now let’s look at what causes structural unemployment.
The business cycle, which is the overall sum of all economic activity in a country over time, determines what kinds of jobs people will be able to acquire, as well as how quickly they can acquire them. It also determines what kind of employment will be available in a given geographic area, because a given geography will always have at least some local businesses. With regard to the nature of these local businesses, the business cycle determines what kinds of jobs people will be able to acquire, and how quickly they will be able to acquire them. And it also determines what kinds of employment will be available in a given geographic area, because a given geographical area will always have at least some local businesses.
But, all this doesn’t tell us what causes structural unemployment. We know about the characteristics of a given business cycle. And we know about the characteristics of a given geographic area. So let’s move on. What causes structural unemployment, then, is something other than the business cycle, something extrinsic, beyond the scope of analysis, which can only be discovered by going looking for it, which is what economists call “in the making.”
Let’s consider just what constitutes structural unemployment. Older workers are a special category of worker, as far as the labor market is concerned. Their loss in employment is really a matter of demographics. That is to say, their presence in the labor force is projected to decline very slightly, over time. They are likely to exit the labor force before their replacement, but once they do, there won’t be enough older workers to fill their shoes.
So there are a number of jobs that cannot be filled by the number of workers. They are not, in fact, being produced because there aren’t enough of them to go around. This is why, for example, there aren’t as many new houses built as there used to be. This is why technological development, as it applies to technology transfer, has been so important.
Technological development reduces the demand for manual labor, which increases the supply of structural unemployment. So the Great Recession and the resulting Great Depression did not happen in spite of a great recession, but were products of its arrival. The Great Depression was a symptom of the deficiency of geographic immobility. That’s what I meant when I said earlier that coal mining is probably good job security.